Precious Metals Close Higher On The Outlook For A Dovish FOMC Meeting And Strong Chinese Economic Data

Rich Asplund - Barchart - Tue Sep 15, 2:13PM CDT

Dec Comex gold (GCZ20) on Tuesday closed up +2.5 (+0.13%), and Dec silver (SIZ20) closed up +0.109 (+0.40%).

Precious metals prices on Tuesday closed higher. The outlook for a dovish outcome to the Tue/Wed FOMC meeting boosted metals prices on Tuesday. Gold prices fell back from their best levels as a rally in stocks on Tuesday curbed the safe-haven demand for gold. Silver prices gained after strength in Chinese data suggested improved demand for industrial metals.

Signs of strength in China's economy is bearish for gold but supportive for industrial metals demand and silver prices. China's Aug industrial production rose +5.6% y/y, stronger than expectations of +5.1% y/y, and the fastest pace of increase in 8 months. Also, China's Aug retail sales rose +0.5% y/y, stronger than expectations of unchanged y/y, and the first increase since the Covid pandemic gathered momentum in early-2020.

Tuesday's U.S. economic data was mixed for precious metals. The U.S. Sep Empire manufacturing index rose +13.3 to 17.0, stronger than expectations of +3.2 to 6.9. Conversely, Aug manufacturing production rose +1.0% m/m, weaker than expectations of +1.3% m/m, although July was revised upward to +3.9% m/m from the initially-reported +3.4% m/m.

European economic data on Tuesday was bearish for gold but positive for silver and industrial metals demand. The German Sep ZEW expectations index unexpectedly rose +5.9 to a 20-1/4 year high of 77.4, stronger than expectations of -2.0 to 69.5.

Speculation the ECB may boost stimulus measures to fight the risks of deflation is another bullish factor for gold. ECB Executive Board member Panetta said on Tuesday that "the results achieved by our monetary policy measures are not fully satisfactory yet, as price pressures and inflation expectations are expected to remain subdued."

Gold prices still have safe-haven support on heightened U.S/China tensions and risks of no-deal Brexit.

Precious metals prices have ongoing support from the Covid pandemic that has curbed global growth prospects and prompted the world's central banks to maintain or even expand their QE programs, which is bullish for gold demand as a store of value. The Covid virus has now infected 29.487 million persons globally, with deaths exceeding 933,000.

Safe-haven demand and dovish central bank expectations have sparked fund buying of precious metals in recent months. Long gold positions in ETFs last Thursday rose to a new record high of 3,412.75 metric tons (data since 2002). However, liquidation of long silver positions has emerged with long silver positions in ETFs falling to a 1-1/4 month low Monday. Long silver positions in ETFs had risen to a new record high of 897.10 million troy ounces on Aug 25.

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